Africa is the talk of the town. The past decade has seen the world’s leading economies race to increase their ties with a continent brimming with potential. And none more so than China.
Its sustained courtship of the continent has seen China and Africa bilateral trade and investment reach astronomical levels. According to 2018 trade figures, China’s trade with Africa totalled US$205bn. And a recent tweak to their approach promises to enshrine Africa as the continent of opportunity for Chinese companies.
Whilst China used the recent Forum on China-Africa Cooperation (FOCAC) to commit a further US$60bn to Africa, emphasis was also placed on the greater role private Chinese companies have to play. China is now hoping that investment from a diverse group of private investors can take African sustainable growth to the next level.
Instead of offering a blank cheque, China hopes to give Africa the ability to accelerate its economic progress even further by utilising the infrastructure Chinese companies develop. The technology, employment, and opportunities created are expected to stimulate growth through a market-based, rather than assistance-based, approach.
This isn’t a sign of China stepping away from Africa. It’s a realisation that if Africa is to truly flourish, then the bulk of the continent’s development must be internally sourced. It can’t be artificial. So, instead of maintaining the dizzying levels of state investment, China is encouraging private companies to play their part.
And they shouldn’t need convincing. Africa is becoming a hugely powerful market for goods and services. Already containing 1.2 billion people, 60% of whom are under the age of 30, Africa’s population is expected to exceed China’s by 2025. Meanwhile, 44 countries recently signed up to the African Continental Free Trade Area, and six of the world’s fastest-growing economies are African.
The untapped growth potential in Africa is similar to China’s 30-40 years ago. China achieved its phenomenal economic growth through internal economic reform, by opening up the economy to international investment, and by embracing entrepreneurship. Africa now has the chance to replicate China’s success.
Opportunities abound for Chinese companies as a result. But they can’t just rush in. The continent has 54 different countries with diverse cultures, unique market characteristics, and disparate regulations. Africa is a continent of both opportunity and risk. There is no single business strategy or solution that can be easily replicated in all African countries. Taking a global headquarters-driven approach won’t work.
Ambitious companies must engage people on the ground, source regional expertise, and devise a local strategy, which should be tailor made to the challenges of doing business in Africa, prioritising local employment and community development. Addressing this should fall into China’s wider attempts to take a more socially responsible role in Africa. The recent FOCAC Action Plan demonstrated the increased focus on harder-to-measure metrics. For example, scholarships in China will be targeted specifically at Africans as a result.
An intertwined history, spanning centuries, demands that China’s approach to Africa is mutually beneficial. Therefore, although China is looking to extend its global influence, it is also hoping to support Africa’s development goals. Eradicating poverty, promoting sustainable growth, and increasing employment are all focus areas. And private companies are key to this.
China’s devotion to Africa won’t dissipate anytime soon. Chinese companies, therefore, have an extended window in which to make their mark. To do so, further attention to specific African needs will be required. By securing local support and working with regional experts, companies have a far greater chance of success. It is a challenge requiring nuance to solve. However, having seen the rise of Chinese companies domestically and internationally, there is high likelihood that they will be able to bring possibilities and potential to the African continent, jointly with their friends in Africa.
Kai Zhu, Principal for China-Africa Trade corridor, Absa Corporate & Investment Bank
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.